Advantages and Disadvantages of Freight Factoring
Freight factoring, also known as over the road factoring, definitely has its advantages in the trucking business, but what are some of the disadvantages of factoring your freight bills? It is best to weigh the pros and cons of freight factoring to make sure it’s the right funding option for your business.
Remember, freight factoring is an excellent way to balance slow payers with ongoing daily expenses, which can otherwise prevent you from delivering product on schedule, paying your creditors, and taking on new loads. Whether you’re considering over the road factoring or a more traditional setup, understanding the trade-offs is key.
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Freight Factoring Pros and Cons
Pros of Freight Factoring
- Ability to receive funds the same day
- Start-up friendly
- Highest advances in the industry for truckers
- Works short-term or long-term to improve cash flow
Cons of Freight Factoring
- Invoices must be payable within 90 days or less
- Must have quality customers to be approved
- Rates are higher than a traditional bank loan
- Customers are notified of change in payment address
Advantages of Factoring Freight
Immediate access to cash
As shown in the above graphic, cash is available within 24 hours of invoice approval. There are no paper checks to cash, so you can complete your necessary spending right away. Having cash on-hand means you can pay invoices well before their due dates, which can save you money through quick-pay discounts. This can be especially beneficial for over the road factoring clients who have regular, ongoing expenses.
Keep your balance sheet clean
Freight factoring is not a loan. When a factor purchases your open invoices it converts your accounts receivable into a liquid asset instead of adding a new liability that could affect your creditworthiness.
Fast approval
Most funding decisions are made within 3-5 business days.
Flexible funding
Factor as many or as few of your invoices as you need to operate smoothly, without binding long-term contracts.
Funding available regardless of size
Whether you are a single owner-operator or running dozens of trucks, there is a freight factor that can help you. Many over the road factoring companies tailor their services to accommodate trucking companies of all sizes.
Factoring decisions based on customer creditworthiness
Factors, unlike banks, base their approval on your customers’ creditworthiness rather than your own. You may qualify for factoring even if you have poor personal credit, as long as your invoices are not pledged elsewhere.
Back-office support
The option to allow your freight factor to handle collections and other back-office support, so you can focus on providing quality service.
Factor off of copies
Over the road factoring companies allow you to submit faxed or emailed copies of your freight bills, eliminating the need to mail originals and shaving days off of the factoring process.
Additional benefits including fuel advances and cards
Factoring fuel advances provide much-needed cash upon load pickup. Fuel cards can qualify your drivers for savings on fuel at a number of refueling stations nationwide. Many freight factors will deposit a portion of your fuel advance directly to fuel cards if you choose.
Disadvantages of Factoring Freight
Potentially higher rates
Freight factoring rates may be higher than the interest rate offered with a conventional line of credit. However, a traditional lender will not offer the additional services available through freight factoring.
Bad customers may cost you
Many freight factors require that you repurchase invoices that have gone out past their recourse (usually 90 days). We do partner with freight factors who offer non-recourse funding that can protect you if a customer fails to pay; in addition, all of our factors conduct credit checks before approving your customers for funding, for your protection.
Factoring company’s reputation
Filing factoring freight invoices with the wrong company can lead to months of frustration as you wait for advances and fall victim to predatory terms. Factor Finders works with over the road factoring companies that are highly regarded in the industry and that have the expertise to provide the top-notch service you deserve.